A Cutting-Edge Approach to Active Investing
In recent years, the dominance of passive investment strategies has overshadowed the once-prevalent practice of active investing[1]. The persistent challenges posed by low inflation and interest rates have made it increasingly difficult for fund managers to surpass benchmark returns after accounting for fees. However, the dynamic shifts in the market landscape, catalyzed by the pandemic and subsequent fiscal stimulus, have reignited the prominence of active management. Flows into actively managed ETFs accounted for 25% and 30% of both yearly and quarterly (Q3) 2023 AUM flow[2].
Amidst this changing environment, the Federal Reserve's swift response to inflation through one of the fastest interest rate hikes in recent history has added another layer of complexity. The United States markets, still navigating the effects of this economic shift, face potential hurdles in achieving returns comparable to those of the past over the next decade. This scenario has prompted a reassessment of the value proposition of active management.
Fortunately, the convergence of extensive data availability and advancements in artificial intelligence (AI) has ushered in a new era of innovation in active investment strategies. Illustrating this evolution is the LG-Qraft AI-Powered Large Cap Core ETF (LQAI), the latest addition to the actively managed ETF landscape. This fund leverages AI algorithms to dynamically select securities for its portfolio, representing a significant leap forward in investment methodology.
LG AI Research: Pioneering AI Innovation
While notable companies like Open AI and Nvidia have taken center stage in the realm of AI, there is often limited insight into how corporations incorporate AI across their diverse business lines. LG AI Research, an integral arm of the LG Group, has been at the forefront of developing AI technologies for its affiliate companies. This spans from proprietary language models[3] to time series forecasting for critical materials used in their products.
Building on the success of its time series model, LG AI Research extended its reach into financial markets, participating and excelling in the M6 financial forecasting competition sponsored by Google and Meta. Buoyed by this success, LG strategically aligned with Qraft Technologies, a recognized leader in AI-powered investment solutions boasting a portfolio of five AI-powered ETFs. The collaboration seamlessly combined Qraft's market expertise with LG AI Research's robust language models, creating a natural synergy that sets the stage for new advancements in active investment strategies.
The LG-Qraft AI-Powered Large Cap Core ETF: A Paradigm Shift in Portfolio Construction
The year 2023 revealed the distinct disparities within the US large-cap stock landscape. While the broader equity market index faced challenges in early 2023, a select group of seven stocks, Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA), later dubbed the "Magnificent 7," propelled the market to new heights. This dispersion within the large-cap universe underscores the potential for active managers to outperform by identifying and concentrating on such opportunities.
The LG-Qraft AI-Powered Large Cap Core ETF (LQAI) aims to capitalize on these opportunities by offering a carefully curated portfolio of 100 stocks selected through its proprietary AI engine. Beginning with a universe of US large-cap equities, the engine assesses each stock for risk, selecting the top 100 with the least risk exposure. Subsequently, the alpha[4] generation model scores each of these 100 stocks for their return potential and optimally weights them using the AI "agent." The resulting portfolio is designed to outperform the broader market, providing institutional investors with a powerful tool to potentially enhance risk-adjusted returns within their portfolios.
Conclusion
In conclusion, the LG-Qraft AI-Powered Large Cap Core ETF (LQAI) represents a paradigm shift in active investing, leveraging the synergy between LG AI Research's cutting-edge technologies and Qraft Technologies' market expertise. As investors navigate an evolving financial landscape, we believe this innovative ETF stands as a testament to the potential of AI-powered active management to unlock new dimensions of performance and resilience.
LQAI Holdings for Listed Companies:
Microsoft Corp (MSFT): 2.46%
Meta Platforms Inc (META): 2.35%
Nvidia Ord (NVDA): 2.24%
Amazon.com Inc (AMZN): 2.30%
Apple Inc (AAPL): 2.27%
Tesla Inc (TSLA): 2.15%
Alphabet Inc-cl A (GOOGL): 2.12%
Date as of: 11/22/2023
Holdings are subject to risk and change
1. Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.
2. https://www.fidelity.com/learning-center/trading-investing/etf-flows
3. Proprietary language model, also known as the Large Language Model (LLM), is a deep learning algorithm that’s equipped to summarize, translate, predict, and generate text to convey ideas and concepts.
4. Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.